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Equal Justice News Release | News Release | Predatory Lending News Release | Letter to Congress
“A good name is more desirable than great riches; to be esteemed is better than silver or gold.” - Proverb 22:1
Thanks & Praises be unto The Lord for the wisdom, knowledge and understanding on legal matter because I received countless feedbacks from folks facing foreclosure and bankruptcy around the United States as follows:
Comments: "I have been inundated with TILA questions. So I went out hunting to see if anyone had already written about it in terms that a lay person might be able to understand. What I found is shown below. I believe it to be generally correct and the citations are good citations of law. See this site for the entire write-up. It should give most lay people an idea on how to handle this and it will be valuable to your lawyer if he/she is not totally familiar with the TILA context at the following link:" http://www.rcxloan.com/Civil_Action_BK_Motion_14.htm. Statement made by Attorney at Law, Neil F. Garfield, M.B.A., J.D.
Download in PDF - Banking Default Letter/Motion for Violation of Truth-In-Lending Act (TILA)
I can be reached for a FREE consultation at (cell) 617-202-8069 or (703) 584-5998,
it's FREE, there is no obligation whatsover...! Sincerely, Pierre R. Augustin, MPA, MBA
WHAT IS MORTGAGE FRAUD?
Mortgage fraud is a “material misstatement, misrepresentation, or omission relating to the property or potential mortgage relied on by an underwriter or lender to fund, purchase or insure a loan.”12 Stated differently, mortgage fraud is the intentional enticement of a financial entity to make, buy or insure a mortgage loan when it would not otherwise have done so, had it possessed correct information.
Mortgage fraud generally takes two forms: “fraud for profit” and “fraud for housing.” Fraud for profit, also referred to as industry insider fraud, is fraud where the “motive is to revolve equity, falsely inflate the value of the property, or issue loans based on fictitious properties.”13 The FBI reports that,
8 Id.
9 Georgia Residential Mortgage Fraud Act, Ga. Code §§ 16-8-100, et seq.
10 See, e.g., Arizona S.B. 1221; Florida S.B. 240 & H.B. 349; Minnesota S.F. 797 & H.F. 851; Texas H.B. 716.
11 See, e.g., S.1222.
12 Federal Bureau of Investigation, supra note 7, at 20.
13 Federal Bureau of Investigation, supra note 7, at 20.
based on existing investigations, 80 percent of all reported fraud losses arise from fraud for profit schemes that involve industry insiders.14 Fraud for housing is fraud where a borrower perpetrates a fraud in order to acquire or maintain ownership of a house. “This type of fraud is typified by a borrower who makes misrepresentations regarding his income or employment history to qualify for a loan.”15
Mortgage fraud is different from “predatory lending.” Mortgage fraud is fraud that harms mortgage lenders or other members of the mortgage industry. While no accepted definition of “predatory lending” exists, the term generally is used to portray in a negative light practices that are likely to harm borrowers.
Because mortgage fraud and predatory lending differ both in terms of the harmful activities and in terms of the parties harmed, steps taken to address mortgage fraud rarely, if ever, will be appropriate to address predatory lending (and vice versa). Indeed, the FBI has emphasized that “[t]he defrauding of mortgage lenders should not be compared to predatory lending practices which primarily affect borrowers.”16 MBA is committed to eradicating predatory lending and continues to support a balanced, strong, national anti-predatory lending standard that protects borrowers from unscrupulous actors without diminishing legitimate lending. MBA urges law and policy makers to recognize the important differences between mortgage fraud and predatory lending and to avoid conflating the two in actions intended to address either.
CURRENT FEDERAL LAWS ALREADY PROVIDE LAW ENFORCEMENT WITH AUTHORITY TO PROSECUTE ALL INSTANCES OF MORTGAGE FRAUD
One of the approaches for addressing mortgage fraud that continues to receive consideration is the enactment of new federal legislation. Indeed, in addressing issues of nationwide concern, a federal solution can be effective. In the case of mortgage fraud, however, current federal law already provides law enforcement with substantial authority to prosecute all instances of mortgage fraud.
These federal statutes applicable
14 Id.
15 Id.
16 See Federal Bureau of Investigations, Financial Crimes Report, supra, note 7, at 21.
to mortgage fraud are tried and tested, have been interpreted and clarified by courts over the course of many years and are tools familiar to federal prosecutors. MBA recommends that new federal legislation, if any, be crafted so as to fit comfortably within the established framework of laws addressing mortgage fraud.
Federal mail and wire fraud statutes apply to all instances of mortgage fraud.
Federal mail and wire fraud statutes are broadly fashioned and have been broadly interpreted. Indeed, the reach of these statutes is so broad that they apply to all instances of mortgage fraud.
The mail fraud statute17 makes it illegal to devise or intend to devise any “scheme or artifice to defraud” anyone and to place in the mail (or a private carrier), cause to be deposited in the mail, take or receive from the mail, or knowingly cause to be delivered any material for the purpose of carrying out the scheme or artifice to defraud. A violation is punishable by fine or up to 20 years imprisonment. Additionally, if the violation affects a federally chartered or federally insured financial institution, a violation is punishable by up to a $1 million fine and up to 30 years imprisonment.
The wire fraud statute18 similarly makes it illegal to devise or intend to devise any “scheme or artifice to defraud” anyone and to transmit or cause to transmit by wire, radio or television any materials for executing such scheme. Penalties for a violation of the wire fraud statute are the same as for a violation of the mail fraud statute. The breadth of these statutes, both in terms of the statutory language and the interpretations by federal courts, make them applicable to any and all instances of mortgage fraud. An illustrative example is the case of United States v. Hitchens, in which the United States Court of Appeals for the Third Circuit upheld the conviction for mail and wire fraud of a real estate agent who participated in conveying false documentation to 17 18 U.S.C. §1341
18 18 U.S.C. § 1343
mortgage companies.19 In Hitchens, the real estate agent argued that she could not be convicted of mail or wire fraud because the evidence at trial did not show that she personally used the mails or wires. The Third Circuit rejected her arguments, because judicial precedent interpreting the mail and wire fraud statutes has established that law enforcement need not show that the person committing the fraud herself placed documents in the mail. Rather, law enforcement need only show that a person commits an act with knowledge that use of the mails or wires would follow in the ordinary course of business.20
Furthermore, evidence of business custom is sufficient to establish knowledge that the use of the mails or wires would follow.21 The Third Circuit concluded that because the evidence showed (1) the routine practice of mortgage companies using mail or carrier services for various documents associated with the mortgage loan, and (2) the prevalence of wire transfers from mortgage lenders to transmit loan proceeds and wire transfers in mortgage transactions, the evidence supported the real estate agent’s conviction.
Since law enforcement agencies can show that mortgage companies routinely use mail and carrier services for documents associated with mortgage loans and that wire transfers are prevalent in mortgage transactions, the mail and wire fraud statutes would be applicable in the case of mortgage fraud as in any case of mail or wire fraud.
Federal law regarding the transportation of stolen goods applies to many, if not all, instances of mortgage fraud.
The federal statute prohibiting the transfer of stolen goods applies to many, if not all, instances of mortgage fraud. It provides in relevant part: Whoever transports, transmits, or transfers in
interstate or foreign commerce any goods, wares, merchandise, securities or money, of the value of
$5,000 or more, knowing the same to have been stolen, converted or taken by fraud; or
19 United States v. Hitchens, 2002 WL 31898234 (3d Cir. Nov. 19, 2002).
20 See, e.g., U.S. v. Bentz, 21 F.3d 37, 40 (3d Cir. 1994).
21 See, e.g., U.S. v. Hannigan, 27 F.3d 890, 894 (3d Cir. 1994).
Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transports or causes to be transported, or induces any person or persons to travel in, or to be transported in interstate or foreign commerce in the execution or concealment of a scheme or artifice to defraud that person or those persons of money or property having a value of $5,000 or more; …
Shall be fined under this title or imprisoned not more than 10 years, or both.22 application.
The Supreme Court has explained that the term “interstate commerce” is intended to be as broad as the Court has used that phrase in Commerce Clause decisions (which is very broad), and can reach activities that do not themselves cross a state’s border.23 Additionally, the federal courts have held that a wire transfer satisfies the “transport” requirement of the statute.24 Since (1) wire transfers are
prevalent in mortgage transactions, (2) wire transfers make use of an interstate system for transmitting money, and (3) wire transfers, in many cases, involve the transfer of funds between entities in different states, it is difficult to envision many cases of mortgage fraud, if any, that would not be subject to § 2314.25
Other federal statutes make illegal fraud on federally chartered or federally insured financial institutions.
In addition to the statutes discussed above, other federal statutes specifically make illegal defrauding the United States, any agency, and any so-called Section 20 financial institutions (defined generally as federally chartered or federally insured institutions but not state-licensed, non-depository lenders).26
In particular, 22 18 U.S.C. § 2314 23 McElroy v. United States, 455 U.S. 642, 653-54 (1982).
24 See, e.g., United States v. Wright, 791 F.2d 133 (10th Cir. 1986). 25 See, e.g., United States v. Bond, 231 F.3d 1075 (7th Cir. 1990) (upholding conviction under § 2314 for mortgage fraud).
26 18 U.S.C. § 20 de!nes “!nancial institution” as: “(1) an insured depository institution (as de!ned in section 3(c)(2) of the Federal false statement or report, or willfully overvalue[ing] any land, property or security, for the purpose of influencing in any way the action of” the United States, federal
agencies, and Section 20 financial institutions in connection with a mortgage loan. The punishment for a violation is a fine of not more than $1 million and/or imprisonment of not more than 30 years.27
Section 20 financial institution.
The punishment for a violation is a fine of not more than $1 million and/or imprisonment of not more than 30 years.28 fine and/or imprisonment of not more than two years.29 These statutes apply to all mortgage fraud targeted at one of the named entities or types of entities. These statutes also
apply to subsidiaries of entities covered by these entities in some circumstances, even if the subsidiary ordinarily would not be covered.30 Section 1014 does not, however, reach all by the National Credit Union Share Insurance Fund; (3) a Federal home loan bank or a member… of the Federal home loan bank system; (4) a System institution of the Farm Credit System, as
de!ned in section 5.35(3) of the Farm Credit Act of 1971; (5) a small business investment company, as de!ned in section 103 of the Small Business Investment Act of 1958 (15 U.S.C. 662); (6) a
depository institution holding company (as de!ned in section 3(w)(1) a member bank of the Federal Reserve System; (8) an organization operating under section 25 or section 25(a) of the Federal Reserve Act; or (9) a branch or agency of a foreign bank (as such terms are de!ned in paragraphs (1) and (3) of section 1(b) of the International Banking Act of 1978).
27 For an example of § 1014 being applied to mortgage fraud, see United States v. Jack, 2007 WL 329838 (11th Cir. Feb. 6, 2007). 28 For an example of § 1344 being applied to mortgage fraud, see United States v. Small, 29 For an example of § 1010 or § 1012 being applied to mortgage fraud, see United States v. Surujaballi, 2006 WL 961098 (2d Cir. Apr. 11, 2006). 30 See United States v. Walsh, 75 F.3d 1, 9 (1st Cir. 1996) (holding that where the parent was specifically covered by one of the entity specific statutes, and the parent determines which loan products should be offered by the subsidiary and the loan is immediately assigned to the parent, a fraud performed against the subsidiary is fraud against the parent — even where the subsidiary was not specifically covered by the statute).
mortgage fraud targeted at state-licensed, non-depository mortgage lenders.
Many other federal statutes would apply to cases of mortgage fraud in various contexts.31 These statutes include: any person with any security of an issuer with a class of securities registered under section 12” of the Securities Exchange Act of 1934; within the jurisdiction of the executive, legislative, or judicial branch of the Government of the United States;” or use of a falsified identification document or other identifying information that appears to have been issued by the United States; offense for the use of a fictitious name or address in connection with mail fraud; of false social security numbers; for Racketeer Influenced and Corrupt Organizations (RICO) violations; of justice; and laundering.
31 For examples of many of these statutes applied to cases of mortgage fraud, see SouthStar Funding, LLC v. Sprouse, 2007 WL States v. Demetz, 2007 WL 708975 (11th Cir. Mar. 8, 2007) (18 U.S.C. §§ 1956, 1957); United States v. Soehnge, 2007 WL 4213 (10th Cir. United States v. DeAngelis, 2006 WL 3082674 (11th Cir. Oct. 31, 2006) (18 U.S.C. § 1001); United States v. Havens, 424 F.3d 535 (7th Cir. 2005) (42 U.S.C. § 408(a) (7)); United States v. Igein, 2002 WL 31429868 (3d Cir. 2002) (18 U.S.C. § 1028). Thus, in addition to the mail and wire fraud statutes and the law prohibiting transportation of stolen goods — which apply to all mortgage fraud — a large number of federal statutes also would apply to mortgage fraud in a variety of contexts.
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